It’s been a tough few weeks. First, the crisis that threatened a history-making national debt default. Then, the dizzying drops of the Dow. This latest financial drama is playing out against an international backdrop of rioters ravaging London. So much for any fragile feelings of hope about a recovery or return to “normalcy”. People are now not just depressed but panicky. I’ve had a few moments of hyperventilation myself as I watched my kids college fund plunge. Again. Just after it had shown a little growth…finally. But I pulled myself back together – in time for the news and again before I lay my head on the pillow at night. I realize if I allow myself a knee-jerk emotional reaction, it only creates more chaos.
It’s easy for me, right? I’m employed, not close to retirement and my kids aren’t even in high school yet. But every single person’s response to this economic rollercoaster ride is critical because so much of economic behavior is dependent on simple psychology. We panic, we make matters worse.
Finding the calm is challenging. Experts say we need to keep our eye on the long-term trends of the market. Stop stressing over every little twist and turn – or even dramatic swing. We need to stop and think before we act rashly. Why is it that people pull their money out of the stock market when it’s down? It’s entirely counter-intuitive but it’s exactly what people do when they let fear take over. I know family members who did just that – afraid they’d better pull out fast before it was too late! If they’d waited just for two years, the bounce-back would have cut their losses tremendously.
As for “normalcy” – from now on, we will have to be more careful with our money than ever before. My prediction is we will never again be able to spend the way this society once did. The pain of unemployment and foreclosure will scar the generations living through these crises. However, we will only make our worst fears come true if we let fear and panic spike our stress and drain our confidence. Try and choose calm if you can. That will pay off in the end.